Monday, November 27, 2017

When Sasol announced plans in 2012 to develop a $15 billion gas-to-liquids plant in Westlake, state economic development officials heralded the South African company’s decision as the proverbial game changer that promised to elevate Louisiana’s economy to a whole new level.

Last week, on the eve of Thanksgiving, the company quietly released a written statement confirming what state officials had been told just a couple of days earlier, that the deal is off because it is “uneconomic.”

The announcement didn’t come as much of a surprise. In 2015, the company said it was temporary delaying construction of the GTL facility, which would have converted Louisiana’s cheap, abundant natural gas into fuels that could compete with oil. When the project was originally announced in 2012, oil was nearly $100 per barrel. Today, it’s averaging around $55 per barrel.

“When we started talking about this, the ratio between oil and natural gas was about twenty to one,” says LSU Economist Jim Richardson. “Now, it’s about half that so you’ve totally changed the ratio and these projects just don’t make any sense any longer.”

While perhaps unsurprising, the decision is still a disappointment to a state that just four years ago was banking on a more than $50 billion industrial construction boom. Some of those projects have, indeed, come to fruition. Others have not.

“We’re always disappointed when we don’t get a project,” says Louisiana Chemical Association President Greg Bowser. “It would have been another boost for our economy, not just for Lake Charles but for Louisiana.”

The Sasol GTL plant is the second such facility to scrap its plans for Louisiana. In 2013, Shell announced plans for a $12.5 billion GTL plant near Sorrento, abruptly cancelling the project just 10 weeks later.

“Obviously when you have as many announced projects as we’ve talked about in recent years you expect to lose some,” Richardson says. “But this suggests these decisions have to do with global issues that we have no control over, namely oil prices relative to natural gas prices.”

In a statement today, Louisiana Economic Development Secretary Don Pierson tried to put the best face possible on the decision, noting that “it is a reflection of market conditions” that had nothing to do with Louisiana per se. He went on to highlight what Sasol is building in southwest Louisiana—a nearly $12 billion ethane cracking plant that is nearly complete and would have been adjacent to the GTL facility.

Pierson points out that the incentive package the state offered Sasol when it first began negotiating for the GTL plant, ultimately helped land the ethane cracking facility, which has led to 6,000 construction jobs and will ultimately create 1,000 permanent jobs.

A $115 million infrastructure grant that was depending upon the development of the GTL project will not be provided with the project’s cancellation, he says.

“The reality is that Louisiana’s economic development efforts that began with Sasol’s proposed GTL project also reeled in one of the most significant chemical manufacturing projects in U.S. history,” he says.